Why FCI Stopped Rice Supply For Ethanol

Rising prices of cereals and concerns over rice production in the 2023-2024 crop year due to insufficient rains followed by floods could be the possible causes.

In a move that could impact India's ambitious ethanol blending petrol (EBP) programme, the Food Corporation of India (FCI) has stopped the supply of rice from its depots for ethanol production.

About 100 distilleries across the country that depend on rice from the FCI for conversion into starch, which is processed to make ethanol, are staring at tough times.

Dual-feed distilleries, which use sugarcane during the season and grains during the off-season, could also take a partial hit, industry players said.

Sources said that while the FCI hadn't officially given any reason for its decision, the rising prices of cereals and concerns over rice production in the 2023-2024 crop year due to insufficient rains followed by floods could be the possible causes.

Business Standard is in possession of a letter from the FCI directing some of its divisional heads to stop the sale of rice for ethanol blending to distilleries and refund the deposited caution money.

If money has been received from distilleries and rice hasn't been lifted, then too, supplies should be stopped with immediate effect, it mentioned.

When contacted, a designated spokesperson for the FCI said he wasn't aware of any such direction.

Another senior official handling such matters said he wasn't authorised to speak to the press on the matter.

The EBP programme aims to enhance India's energy security, reduce import dependency on fuel, save foreign exchange, and address environmental issues.

The Centre's National Policy on Biofuels envisages a target of 20 per cent blending of ethanol in petrol by 2025-2026.

To achieve this objective, apart from sugarcane, food-grains such as maize and rice available with the FCI have also been allowed for ethanol production.

The FCI sells rice to ethanol makers at Rs 20 per kg, a rate much lower than the open market sale price of Rs 31 per kg.

Around 1.5 million tonnes of FCI rice is required for ethanol blending annually.

This, industry players said, was a miniscule proportion of the total rice stock in the Central pool, which as on July 1 was estimated to be 41 million tonnes (this included unmilled paddy lying with millers).

The buffer requirement for the same period is 13.54 million tonnes, while rice required for public distribution system (PDS) operations is estimated to be 36-38 million tonnes.

"Around 100 grain-based distillery units will be on the verge of closure if rice supplies from the FCI stop abruptly.

"Only those who have some rice stocks with them will run for the next few days, and they too will have to stop then," V K Raina, director general, All India Distillers Association, told Business Standard.

The association, along with its members, is planning to meet senior officials to apprise them of the ground situation.

According to industry sources, in the 2022-2023 ethanol supply year that will end in October 2023, around 5.54 billion litres have been contracted by oil-marketing companies (OMCs) till July 9.

Of the contracted amount, 3.52 billion litres have already been supplied, which has resulted in 11.75 per cent blending of ethanol with petrol, as against the targeted 12 per cent blending.

Of the ethanol contracted by OMCs, 3.91 billion litres (70.39 per cent) will come from sugarcane, while the rest 1.63 billion litres will come from grain-based sources, mainly FCI rice.

Trade and industry sources said that of the 1.63 billion litres of ethanol from grain-based sources, around 0.66 billion litres have been supplied.

The delivery of the balance, 0.50-0.60 billion litres, in the remaining three months (August-October) has come under a cloud because of the FCI move.

Basically, ethanol is produced in India from two feedstocks.

First is sugarcane, and second is grains, which include rice supplied at concessional rates from FCI depots, maize, and damaged grains (which essentially is broken rice only).

Of the sources that go into making ethanol from grains, FCI rice is the most preferred as it has high starch content, which is crucial for ethanol production.

FCI rice has a starch content of 70-71 per cent.

In the case of maize, it's about 66 percent, while broken grains have even lower starch content.

Besides, the latter have a lot of impurities and are usually high on moisture -- all considered negative for ethanol making.

Besides this, while FCI rice is available at a price of Rs 20 per kg, ethanol produced from it is bought by OMCs at Rs 58.50 a litre.

In the case of maize, the purchase cost is around Rs 22 per kg even in the main production centres even as ethanol produced from it fetches a lower price of Rs 56.35 a litre.

Then comes broken rice or damaged grains.

It is available in the market at Rs 23-Rs 24 per kg, but ethanol produced from it fetches a price that is lowest of all, Rs 55.54 a litre.

"Just 1.5 million tonnes of FCI rice is needed to run the ethanol programme and hence there is no need to put any sort of restriction on the same," a senior industry official said.

"More than anything else, it will impact investments coming into the sector and act as a dampener for new players."

Feature Presentation: Ashish Narsale/Rediff.com